Is Tea the New Coffee?

The fast-growing chain selling loose-leaf teas and artisanal tea-making gear posted strong numbers, but it disappointed investors holding out for more in its guidance for the seasonally potent holiday quarter. The end result is that Teavana has the sorry distinction of being one of the few stocks to post double-digit percentage declines during the most bullish weekly Wall Street run in years.

Unfortunately, the company's outlook for all of fiscal 2011 calls for a profit of $0.43 a share to $0.45 a share on $162 million to $166 million in net sales. Analysts were slurping away at the high end of those ranges, and that's apparently not good enough for a fresh stock with a lofty valuation.

If tea can get the same kind of makeover as java, Teavana will be ahead of the curve with its aromatic stores stocking more than 100 varieties of high-end teas.

Before Teavana's summertime IPO, there really wasn't a pure tea play on the market. Celestial Seasonings parent Hain Celestial (Nasdaq: HAIN) and Lipton's Unilever (NYSE: UL) aren't constructed as companies where teas move the needle. Starbucks has Tazo, of course. Keurig machines whip up a mean single serving of tea. However, if the same upscale relaxation trend that continues to drive yoga outfitter lululemon athletica (Nasdaq: LULU) is for real, how can Teavana not bounce back?

I'll make this interesting. As part of our CAPScall initiative for accountability, I'm initiating a bullish call for Teavana on Motley Fool CAPS. I like my timing. The stock closed below its $17 IPO price on Friday for the first time in its brief publicly traded life.

The opportunity to get in at a better price than this summer's first public investors is too tempting to ignore.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Green Mountain. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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First, to NAAndrews, Tealuxe is not a Teavana competitor. Tealuxe has just two remaining stores (Cambridge and Providence) compared to Teavana's 180+ and they are styled as a sit-down tea cafe. Tealuxe is a mall chain that sells loose leaf tea and teaware and does not offer tea or food service in store.

I don't think Teavana is going to be the tea shop that is going to change things. True tea enthusiasts are not so fond of the company in general, especially after they cannibalized SpecialTeas which had a very popular following. They are seen as overpriced for their tea and they are known to hard sell their teaware. Reports I have from smaller scale tea purveyors is that Teavana is good at introducing a segment of the population to tea but then those buyers tend to turn to local sellers who offer better quality at lower prices and are often more knowledgeable than the counter staff at the mall.

I'm a very serious tea fan and I believe we are on the cusp of a big tea movement here. I think it might come at the hands of Starbucks though who is now making serious moves to improve their Tazo line.

One of the major problems facing any tea shop be it sit down or counter sales is volume. Starbucks has an advantage in that they have dual products (Tea & Coffee) to help support the store overheads. Having a stand alone tea shop is very difficult to support. I can understand why Teavana uses a hard sell for their tea ware. Also, if you are consentrating on only the hot tea business, you are only looking at 15% of the tea consumed in the USA. Iced tea which represents 85% of tea consumed is also more profitable per serving.